Category Archives: Property Tax

The Fish Partnership says smaller businesses finally given a break by Chancellor

The contributions that small and medium-sized businesses make to the country’s economy have been rewarded, by a Spring Budget that contains more good news than bad for UK industry.

To the surprise of many, businesses have largely escaped Budget cuts and have instead reaped the rewards in the form of reduced business rates, a drop in Corporation Tax, new rates for commercial stamp duty aimed at helping smaller businesses and a simplified tax system for the self-employed, which sees Class 2 national insurance abolished.

 From April 2017, small businesses that occupy property with a rateable value of £12,000 or less will pay no business rates and there will be a tapered rate of relief on properties worth up to £15,000. The move, which is good news for independent retailers and single site units, means that 600,000 businesses will pay no rates.

From this April, Capital Gains Tax rates will be cut from 28 per cent to 20 per cent for those with gains falling into the higher rate band and within the basic rate from 18 per cent to 10 per cent, although residential property will still be taxed at current rates. Whilst Capital Gains Tax on residential property does not apply to the main home, additional properties will therefore be penalised and this will hit buy-to-let landlords.

The main rate of Corporation Tax will be reduced to 17 per cent, benefiting over one million businesses although this will not take effect until 2020. The move aims to help businesses with cash flow.

Currently, the self-employed have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year but from 2018, national insurance contributions will be simplified and Class 2 contributions will be abolished, with Class 4 NICs reformed so the self-employed can continue to build their state pension benefit entitlement.

Personal Income Tax allowances are set to increase again. Currently up to £10,600 can be earned each year tax-free and this figure is already set to rise to £11,000 in 2016. The latest announcement sees a further increase to £11,500 in April 2017.

On the down side, personal and business insurance costs are set to rise with an additional half a per cent added which will now see Insurance Premium Tax rise to 10 per cent. The Chancellor has also used the Budget to introduce a Sugar Tax, with soft drinks companies having to pay a levy on drinks with added sugar from April 2018.

According to the Office for Budget Responsibility, the UK economy will expand by 2 per cent this year, 2.2 per cent in 2017 and then 2.1 per cent in 2018, 2019 and 2020.

Although the Chancellor has claimed that this growth will be faster than any of the major development economies he has, nevertheless, had to revise his original predictions downwards. Mr Osborne, who has signalled his intention to support the ‘stay’ vote in the forthcoming Brexit referendum, has words of warning for the ‘leave’ camp stating that the UK economy growth figures are based on the UK remaining in the European Union.

Denise Eyles, Director at Buckinghamshire-based accountants The Fish Partnership, said: “This Budget has taken many pundits by surprise. The big prediction that fuel duty would rise, which would have hit businesses and motorists hard, failed to materialise.

“Instead we have a Spring Statement which is largely positive news for smaller businesses. Unless you are a buy-to-let landlord or a sugary drinks manufacturer, there is very little negative news.

However, Denise also issued a word of caution saying: “There are certain elements of the current Budget which may not be particularly beneficial to small business-owners. The Chancellor has hinted that salary sacrifice schemes may be limited in the future and he has also signalled an end to off payroll engagement in the public sector from April 2017. Both measures could hit business owners who use such schemes to avoid paying tax.

“It should also be noted that the Chancellor has given away a substantial amount in this Budget and, without the usual large-scale hikes in duty and other taxes to cover these giveaways, one has to question how the books will be balanced long term. Without wishing to appear cynical, he may decide to claw back revenue in his Autumn Statement.

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Changes to the buy-to-let property market

The buy-to-let market is set to change following Chancellor George Osborne’s announcement last November that landlords would pay a three per cent Stamp Duty Land Tax (SDLT) surcharge, with effect from 1 April 2016.

In addition, mortgage interest tax relief changes, due to be phased in from April 2017, will mean thousands of buy-to-let landlords will see their profits significantly reduced from next year.

In addition, a 30-day limit for the payment of capital gains tax on the sale of buy-to-let property, rather than the current requirement to pay it at the end of the tax year, will be in place from 2019.

Whilst some landlords are rushing to the auction rooms to snap up properties before the new stamp duty takes effect, others are looking to the future and are ‘cashing out’ before next year’s tax relief changes erode their profits.

The Association of Residential Letting Agents (ARLA) has said that the three per cent stamp duty surcharge for investors has had an immediate impact, with a quarter of agents reporting an uplift in interest from landlords looking to purchase a buy-to-let property in time to beat an increased tax bill.

The report came as speculation mounts over what effect SDLT reforms around buy-to-let and second properties announced in the Autumn Statement of 2015 will have on house prices and rents.

According to an ARLA survey, 62 per cent of agents predict the changes will result in higher rents while 65 per cent say it will push landlords out of the market and decrease the supply of homes to rent.

Link: Association of Residential Letting Agents (ARLA)

Buy-to-let mortgage applications from limited companies more than double as landlords strive to beat tax hikes

The number of buy-to-let loan applications from limited companies has surged in recent months as landlords prepare for tax hikes starting in April, say mortgage brokers.

The latest Buy-to-Let Index, produced by specialist broker, Mortgages for Business, found that 38 per cent of its applications by December 2015 were from limited companies, up from 15 per cent in October; the month before the changes were announced in the Autumn Statement.

The broker’s figures come as popular alternative lender Aldermore reduces its rates and removes its fees on its limited company mortgages in anticipation of increased demand.
The move by landlords to create limited companies come after Chancellor George Osborne announced in his July 2015 Budget that mortgage interest relief would be capped at 20 per cent from 2017, rather than allowing individuals to claim relief at the marginal rate of tax.

The deductions from property income for loan interest will be restricted to:

  • 75 per cent for 2017/18
  • 50 per cent for 2018/19
  • 25 per cent for 2019/20
  • 0 per cent for 2020/21 and beyond.

A basic rate reduction on income tax liability on the loan interest, calculated at 20 per cent, will still be available to buy-to-let landlords.

This announcement was subsequently followed by new measures in the Autumn Statement, which will see the introduction of an extra three per cent Stamp Duty Land Tax (SDLT) surcharge for buy-to-let and second home purchases from April 2016.

Under the new rules, a house bought for £275,000 as a second residence or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.

These changes have led some landlords to fear reduced yields or losses, which has led many to find new ways of cutting the costs of buy-to-let by either purchasing properties before the SDLT changes come into effect, or setting up limited companies that will still be eligible for higher rates of mortgage interest tax relief.

David Whittaker, Managing Director at Mortgages for Business, said: “The increase in limited company buy-to-let activity is to be expected since the proposed restrictions to buy-to-let mortgage interest relief for individuals paying the higher tax rate were announced by the Government in the Summer Budget.

“Operating portfolios through corporate structures is expected to be more tax efficient, particularly for higher tax rate-paying individuals, including individuals where the new tax regime will tip them into the higher tax bracket where previously they had remained below it.”

Link: Buy-to-Let Index

Buy-to-let market faces tough new rules

Last year’s Autumn Statement saw the introduction of a number of new measures, which could have a significant effect on the booming buy-to-let property market.

The Chancellor announced during his speech to the Commons a number of new measures that could affect property investors. Chief among these proposals is the introduction of a three per cent surcharge on stamp duty land tax (SDLT) for buy-to-let properties and second homes that will come into effect from April 2016.

This will see residential property investors charged significantly more when purchasing new homes.

Under the new rules a house bought for £275,000 as a second residence or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.

Alongside this new measure, George Osborne also announced that from April 2019, capital gains tax (CGT) on sold properties will now be due within 30 days of the transaction.

This is a significant departure from the current rules, which requires payment of CGT by 31 January following the end of the tax year in which the sale takes place.

These new proposals follow on from additional changes made earlier in the year during the Summer Budget, which will see mortgage interest tax relief for buy-to-let investors decrease over the next five years.

The deductions from property income for loan interest will be restricted to 75 per cent for 2017/18; 50 per cent for 2018/19; 25 per cent for 2019/20 and 0 per cent for 2020/21 and beyond.

Individuals will be able to claim a basic rate reduction from their income tax liability on the loan interest, calculated at 20 per cent.

Commenting on the Chancellor’s announcement, Richard Lambert, CEO of the National Landlords Association, said: “The Chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent.

“The exemption for corporate investment makes this effectively an attack on the small private landlords who responded to the housing crisis by putting their own money into providing homes by the party that they put their faith in at the election.

“If it’s the Chancellor’s intention to completely eradicate buy-to-let in the UK then it’s a mystery to us why he doesn’t just come out and say so.”

Link: Main Tax Announcements from Autumn Statement

HMRC turns attention to ‘affluent’ taxpayers

HM Revenue & Customs (HMRC) has announced that it has doubled the number of inspectors trawling through the tax files of individuals earning £150,000 or more.

Until recently, the taxman was mainly investigating ‘high net worth’ individuals – those earning £1 million or more – but now HMRC’s attention has moved to those a little further down the income scale.

The so-called ‘Affluent Unit’, which concentrates on people who earn enough to pay the 45 per cent additional rate of tax, has increased its headcount by 54 per cent in two years, from 213 in 2012/2013 to 327 in 2014/2015.

This growth reflects the new budgets granted to HMRC in the drive to improve revenue collection. It is especially interested in those owning property or bank accounts offshore.

Those paying low rates of tax on total income are also likely to be subject to scrutiny, as are individuals who file self-assessment returns late or anyone who has previously invested in a scheme devised to reduce tax bills.

Link: HMRC

Stamp duty tax take rises as house prices increase

Official figures show that house prices in England have risen considerably faster than in the rest of the United Kingdom in the past year.

House prices increased by 5.6 per cent in England, 0.8 per cent in Wales, 2.9 per cent in Northern Ireland and fell 0.9 per cent in Scotland, according to figures from the Office for National Statistics (ONS).

In London, prices increased by 4.2 per cent in the 12 months to August, while in the North West and Yorkshire and the Humber they increased by 4.7 per cent and 4.8 per cent respectively.

As a result, HM Revenue & Customs (HMRC) collected £7.5 billion in stamp duty from residential property transactions in 2014/2015; a rise of 165 per cent over the previous six years. Between 2008/2009 and 2014/2015, stamp duty revenues in London have grown by 248 per cent, compared to around 158 per cent in the East of England and 140 per cent in the South East. Other English regions had between 75 per cent and 120 per cent growth in the same period. This year, transactions in London have contributed just over £3 billion, followed by the South East at £1.6 billion. Together, these two regions accounted for 66 per cent of the total 2014/2015 tax take.

The increase in London reflects the growth in house prices in the capital over this time compared to the rest of the country, as well as the fact that the higher rates of stamp duty on property transactions worth more than £1 million largely affect London, according to estate agent firm Knight Frank.

Grainne Gilmore, Head of UK Residential Research at Knight Frank, pointed out that last December’s cuts in stamp duty for homes worth up to £1.1 million has had little impact on the tax receipts from home buyers in the year to April. “Overall, home buyers still paid more in stamp duty than over the previous 12 months. While the increased take from stamp duty reflects the growth in house prices and a pick-up in transactions, another factor has been the increases to stamp duty charges, especially towards the top end of the market.

“It remains to be seen what the impact of the new stamp duty regime will be for the Treasury in the coming year. Despite hitting a record high for residential receipts in the year to 2015, the total stamp duty tax take at £10.7 billion is £800 million lower than the Treasury forecast when it made the changes to stamp duty back in December,” she added.

The number of transactions for £3.3 million-plus homes has fallen by 25 per cent in the first seven months of 2015 compared with a year earlier, according to separate figures by Knight Frank.

Link: Office for National Statistics

New data shows inheritance tax bill increase

According to new analysis of HM Revenue & Customs (HMRC) data, the cost of passing on wealth to the next generation has increased by three per cent or £5,000 in one year.

The analysis by Prudential has revealed that in 2012/2013 – the latest year for which information is available –the British population paid more than £3 billion to the Treasury in inheritance tax (IHT).

During this period the average death tax bill rose almost £5,000 in a year to £170,000, despite the fact that only 17,900 (six per cent) of the 280,000 estates reviewed paid IHT. The majority of people who paid IHT were from the South of England, with London and the South East accounting for half of all IHT payments in the year. According to HMRC figures, the average inheritance tax bills among those in London were much higher at almost £236,000; 38 per cent more than the national average IHT payment.

The areas with the most significant growth in IHT payments however, were Northern Ireland and the North East of England, with the average IHT bill climbing 25 per cent and 10 per cent respectively. Scotland and Wales saw a decline in IHT with the average bill in Scotland dropping almost nine per cent and in Wales by five per cent. 

However, changes to IHT rules to help families pass on their home without paying additional tax could signal a big change in the amount of money HMRC receives from estates.

During the Summer Budget, the Chancellor George Osborne announced that from April 2017 individuals will be entitled to a family home allowance in addition to their existing individual £325,000 inheritance tax allowance.

This new allowance will be phased in over the coming years and will allow married couples or those in civil partnerships to pass on a property worth up to £1 million tax free by 2020/2021.

Link: Inheritance Tax Data

‘Barriers to justice’ for UK firms

According to business groups, new business rates legislation (proposed in the Government’s Enterprise Bill) will increase the administrative burden on small firms and act as a “barrier to justice” for businesses seeking to appeal.

The bill contains three new measures which have all been criticised for “riding roughshod” over the needs of UK businesses.

Small firms have long called for more transparency around how business rates, or tax on commercial property, is measured. But critics claim the bill has failed to address this issue; instead allowing the Valuation Office Agency – which handles business rates appeals – to share information around how rates are measured with local authorities but not with the individual businesses.

The Government is seeking to discourage business rates appeals from being made by introducing an upfront fee in a bid to reduce the number of active investigations in the system; currently 200,000.

Finally, the bill proposes a “civil financial penalty” on any firm that “knowingly, recklessly or carelessly provides information, which is false in a material particular.” But this could affect innocent business owners who are confused by the system.

The UK’s leading business groups have criticised the Government for attempting to push through draconian changes that were abandoned in the face of industry opposition in 2013.

“The current business rates system harms companies by relying on a decades-old model that no longer reflects economic conditions, which has made life tough for retailers in particular,” said Rhiannon Jones, the Principal Tax Policy Adviser at business lobbying group CBI.

A recent poll of 100 retail businesses by the British Retail Consortium found that 95 per cent believed a reform of business rates would boost the nation’s productivity. Retailers are now paying £2.40 in business rates for every £1 in corporation tax.

Business rates are forecast to bring in £28 billion this year to the public purse. George Osborne announced in the Summer Budget that retailers would face a £4.9bn increase in business rates – equivalent to 17.5pc – by 2020.

Business rates, which date back to 1601, are currently calculated according to rental values.

Link: Business rates

Views sought on new Inheritance Tax Proposals

Earlier this year during the Summer Budget the Government announced it would phase in a new residence nil-rate band (RNRB) from 6 April 2017 when a residence is passed upon death to a direct descendant.

This has been designed to reduce the burden of Inheritance Tax (IHT) by making it easier to pass on the family home to direct descendants without a tax charge and has been seen as a response to the UK’s growing house prices.

When phased in the rates will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

After this initial planned period, rates will then rise in line with the Consumer Price Index (CPI) from 2021 to 2022.

However, in a new technical note, HM Revenue & Customs (HMRC) has announced new proposals to take into account people who choose to downsize to a less valuable property later in life or who cease to own their own home, to ensure that they are not unfairly penalised by the policy.

In its note, HMRC said: “The government recognises that individuals may wish to downsize to a smaller and often less valuable property later in life. Others may have to sell their home for a variety of reasons, for example, because they need to go into residential care.

“This may mean that they would lose some, or all, of the benefit of the available RNRB. However, the government intends that the new RNRB should not be introduced in such a way as to disincentivise an individual from downsizing or selling their property.”

It goes on to say that where part or all of the RNRB might be lost because the deceased had downsized to a less valuable property, or had ceased to own a residence, the lost RNRB will still be available as long as a number of qualifying conditions are met. The qualifying conditions for this ‘additional RNRB’ can be found in the link to the technical note below.

If you would like to comment on this proposal, please email: ihtandtrustsconsult.car@hmrc.gsi.gov.uk. The deadline for receiving responses is 16 October 2015.

Link: Technical note on Inheritance Tax

Rents set to rise as Budget hits landlords

Almost two-third of landlords are considering raising rents as a result of summer Budget tax changes, research has found.

In the summer Budget on 8 July, Chancellor George Osborne announced that mortgage interest relief for residential landlords would be restricted to the 20 per cent basic rate of income tax, phased in over four years from April 2017.

Currently, individual landlords can deduct their costs – including mortgage interest – from profits before they pay tax, with higher income landlords receiving tax relief at 40 per cent or 45 per cent.

Interim findings from a survey of landlords by the Residential Landlords Association (RLA), published on 21 July, found that 65 per cent of respondents were now considering increasing rents as a direct result of the Budget.

Mr Osborne had argued that landlords were taxed more favourably than home owners but the independent Institute for Fiscal Studies said that Budget documents stating the current regimes puts investing in a rental property at an advantage as “plain wrong”.

RLA chairman Alan Ward said: “The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different. It’s time the Treasury recognised residential landlords as a business.”

Meanwhile, a consultation has been launched into another summer Budget measure reforming landlords’ wear and tear tax allowance. Currently, residential landlords can offset ten per cent of annual rental income against tax as a furnishings wear and tear allowance.

From April 2016, the government intends that they instead be required to deduct the actual cost of replacing furnishings from pre-tax earnings. A consultation into the measure was launched on 17 July and will run until 9 October.

The National Landlords Association said it broadly welcomed the move but that it would be calling for transitional provisions to ensure that landlords who had recently invested in furnishings – planning to offset the cost over several years using the allowance – were not disadvantaged.

Link: Wear and tear allowance consultation